Take a walk around Nomura’s giant trading floor on the third level of its London office off Upper Thames Street and it soon becomes clear that its make-up is a microcosm of the changing nature of the bank’s markets business.

When Nomura acquired Lehman Brothers’ European operations in 2008, the floor was fit for the equities business – considered Lehman’s crown jewel – it had acquired. Fixed income was stationed on a much smaller trading floor, one level below.

Less than five years on, the equities floor was almost empty. Most senior former Lehman figures who had moved across had either left or been jettisoned, while Nomura had folded most of its equities execution team into its agency brokerage Instinet, based at Canary Wharf.

But last year the space once more came alive. Fixed income moved up a level, taking the vacant space, and was combined with equities trading in a single floor – a rarity, given the usual rivalries between these two business lines.

It sounds like an explosive recipe. But Steve Ashley, Nomura’s head of global markets who instigated the move, said it wasn’t.

He said: “I think, with the equities business, because it had a difficult period with the industry undergoing a period of secular change, there was much less cynicism than you might expect.”

Arguably, the combined floor is a symbol of an experiment that Nomura has been forced to undertake amid cost pressures, but it is one that others might in time choose to follow.

Ashley said: “Other banks have global markets constructs but we are the only bank, I believe, that has done a full root and branch integration.” He admits the project is still a work in progress but it has gone beyond what Nomura, or indeed any other bank, has done before.

Related

What other banks would call business units – equities, rates, foreign exchange – Nomura calls asset classes. A centralised business management and financing group has helped the bank to deploy capital to the best performing of these asset classes as and when they need it.

Ashley said: “Creating flexibility within your business model is the key to continual success. [A centralised business resource management function] gives us the ability to deploy capital between businesses, regions, much, much speedier and much more effectively.”

Jonathan Lewis, deputy chief financial officer at Nomura, told Financial News in January: “We wanted a more dynamic, on-the-ground ability to direct resources where we saw the best return. Given how quickly the market and regulatory environment is changing, it doesn’t lend itself to cumbersome governing committees that are making those decisions.”

Cross-asset focus

This much clearer line of sight on resources applies as much to human resources as it does to capital. This could be as small as having a cross-asset class volatility strategist focus on the equity market in a period where fixed income volatility has been dampened by tapering.

Ashley, a fixed income veteran, said: “I’ve been to see as many equities accounts in the last year as fixed income accounts. That is driven by a desire to partially explain the model, but also by the slow burn rotation of fixed income into equities.”

Cross-selling in equities and fixed income from East to West - or the selling of Asia Pacific products to Europe and the US and vice versa - has increased, and is up by more than half within global markets in the course of the bank’s fiscal year, according to Ashley.

He said: “Some of the biggest trades we’ve done are in the Japanese market with macro hedge funds through the fixed income sales team. I won’t deny that we’ve had a tailwind behind our backs regarding Abenomics… but I would say the east-west cross-selling is a clear representation of the success, or some success, of marrying the synergies of the two businesses together.”

This approach received an endorsement of sorts late last year, when McKinsey recommended banks move from a trading architecture based on assets to one based on capabilities. In an outlook report, the consultancy said: “The way banks traditionally structure their business models by asset class can lead to inefficiencies, duplication or missed opportunities at all stages of the business system.”

For a bank like Nomura, which had been weighed down by over-expansion following its acquisition of Lehman’s business, the approach made sense.

Ashley said: “The de-duplication and de-layering of the organisation was done very quickly. Those savings came from a multitude of areas, from technology, business management and from senior management. There is a positive waterfall that cascades all through the organisation.”

The impact on the bottom line is hard to gauge at this stage, particularly taking into account the tailwind provided by increased interest in Nomura’s home market in Japan.

Revenues for the global markets business for the first three quarters of Nomura’s financial year – or the period from April 1 to December 31 – come to ¥482.9 billion (or around $4.7 billion at current exchange rates), up from ¥387.3 billion for the same period a year earlier.

Two things are evident within these results. First, the bank has taken fixed income market share, growing revenues while its rivals have been posting declines. Lewis estimates that the bank’s market share has doubled in the past three years from around 2.5% to 5%.

Second, equities – a business many had expected to suffer from being shunted alongside fixed income – has increased its contribution to the global markets revenue mix.

Equities made up 40% of global markets revenues in Nomura’s first three quarters of fiscal year 2013/2014, up from around 30% in the same period the previous year.

It is the rebuild of the equities business and the longer-term synergies that will, according to Ashley, “define the success or otherwise of the integration”.

He said: “A key delivery for me is the rebuild of the equities franchise within the global markets construct. I think we have identified very well our spot in certain parts of our fixed income businesses and I think we need to define where we can be most additive in our equities franchise.”

It remains unclear what part Instinet will play in that electronification strategy (see right), and more broadly, the hard work in transforming Nomura’s markets business is far from over.

However, that is arguably true of the sales and trading operations of several other investment banks. Will others follow Nomura’s lead?

Ashley said: “I have chatted to a couple of my peers who say they’d love to do what we’ve done but they have physically too many people. It has been easier for us, because we are a little smaller and didn’t have very well established silos.”

“I do expect other firms to follow suit and as they shrink, it becomes easier to do so.”

• Correction: An earlier version of this story incorrectly stated that Nomura had installed single dealing floors in NY, London and Tokyo. There is no such desk in Tokyo.

This article first appeared in the print edition of Financial News dated March 17, 2014